Business Concentration

Business Concentration

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What is a business concentration?

Business concentration is a situation in which two or more companies are united with the objective of expanding their capacity and market power to finally have a common benefit, often being the consumer the most affected.

Main types of business concentration

Among the different types of business concentration that exist, we distinguish horizontal concentration and vertical concentration:

  • Horizontal concentration: It occurs with companies that work in the same sector and have the purpose of eliminating competition.
  • Vertical concentration: It results from companies that complement their productive activity to improve their profitability.

Business concentration in Ecuador and regulatory measures

In Ecuador, there are regulatory measures to prevent a business concentration that significantly affects the final consumers. Below are the main pronouncements, laws or regulations:

Constitution of Ecuador

Article 284 of the Constitution of the Republic establishes the objectives of economic policy, among which are: to ensure an adequate distribution of income and national wealth; to encourage national production, systemic productivity and competitiveness, the accumulation of scientific and technological knowledge, strategic insertion into the world economy and complementary productive activities in regional integration; and, to maintain economic stability, understood as the maximum level of production and employment sustainable over time.

Article 304 number 6 of the Magna Carta establishes that the commercial policy will have the objective of avoiding monopolistic and oligopolistic practices, particularly in the private sector, and others that affect the functioning of the markets.

Organic Law of Regulation and Control of Market Power – LORCPM

This Law was published in the R.O. Supplement 55, on October 13, 2011, and states among its main objectives to generate a healthy competition and free concurrence in the different markets where different economic operators interact. The Law authorizes, denies or subordinates concentration operations, based on a study that identifies the market power obtained by the different economic operators after the merger and how this may affect the proper functioning of the market generated some type of unilateral practices to which the competition could not be able to give an effective response, with the result that the consumer is harmed by paying more for the same product or receiving it with lower quality.

Below, Articles 1 and 2 of the LORCPM Law:

  • The object of the present law is to avoid, prevent, correct, eliminate and sanction the abuse of economic operators with market power; the prevention, prohibition and sanction of collusive agreements and other restrictive practices; the control and regulation of economic concentration operations; and the prevention, prohibition and sanction of unfair practices, seeking efficiency in the markets, fair trade and the general welfare of consumers and users, for the establishment of a social, supportive and sustainable economic system.
  • All economic operators, whether natural or legal persons, public or private, national or foreign, with or without profit-making purposes, who currently or potentially carry out economic activities in all or part of the national territory, as well as the guilds that group them, and those who carry out economic activities outside the country, are subject to the provisions of this law, to the extent that their acts, activities or agreements produce or may produce harmful effects on the national market. The conduct or actions of an economic operator shall be attributable to him and the operator controlling him, when the conduct of the former has been determined by the latter. This law includes the regulation of market distortions originated in geographical and logistic restrictions, as well as those resulting from productive asymmetries between economic operators.

Competition authorities resolving concentration issues

Article 42 of the Law provides that the Superintendent is the highest administrative, resolution and sanctioning authority, and is responsible for the legal, judicial and extrajudicial representation of the Superintendency.

Article 37 – Powers of the Superintendence of Control of the Market Power – It is incumbent upon the Superintendence of Control of the Market Power to ensure the transparency and efficiency in the markets and to promote competition; the prevention, investigation, knowledge, correction, sanction and elimination of the abuse of market power, of the agreements and restrictive practices, of the unfair conducts contrary to the regime provided for in this Law; and the control, authorization, and if applicable, sanction of the economic concentration. The Superintendence of Market Power Control will have the power to issue rules with the character of generally mandatory in the matters of its competence, without being able to alter or innovate the legal provisions and regulations issued by the Regulatory Board.

Article 44 provides that among the powers of the Superintendent is that of absolving consultations on the obligation to notify operations of economic concentration. At present, the Superintendency has a First Instance Resolution Commission made up of members appointed by the Superintendent, who are responsible for hearing and resolving requests for authorization of mandatory notification of concentrations based on the final report submitted by the Intendancy of Control of Concentrations.

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